Applying for your first credit card can feel overwhelming, and conflicting, confusing information online often makes things worse.Ryan Remiorz/The Canadian Press
Whether you’re fresh out of school, new to the country or simply building credit for the first time, applying for your first credit card can feel overwhelming.
Not only are there hundreds of cards to choose from, but there’s plenty of conflicting information online. Here are some insider truths that you need to know before you submit your first credit card application.
Don’t obsess over your credit score
In Canada, your credit score is a number between 300 and 900. The higher your score, the more creditworthy you are. This matters because your credit score can affect your ability to obtain a loan, rent a home or even land a job.
Generally, a score of 660 is considered good, and 725 is excellent. But there’s no need to constantly monitor your credit score or get stressed about it. Instead, focus on paying your bills on time and in full, maintaining a low credit utilization ratio – how much credit you’re using relative to your total limit – and limiting new credit card applications. Your credit score will improve naturally over time.
You can get a credit card from different banks
Getting your first credit card from the same bank where you’ve opened your chequing and savings accounts is usually a smart move because the established relationship boosts your chances of approval – but it’s not necessary.
It’s possible that you already have an established credit history from postpaid bills, such as your internet and wireless providers, so you could apply for a card that offers better rewards or benefits – including travel insurance or no foreign exchange fees – from a different financial institution. To pay off your balance, simply treat the credit card like a “bill payment” through your daily bank.
Not all rewards programs are the same
Loyalty points, miles or cash back rates vary significantly among credit card issuers and even within a single bank’s lineup of cards. You need to examine both the earn and redemption rates of each program to decide what’s best for you.
For example, TD offers several travel cards that earn you either TD Rewards or Aeroplan points – the loyalty program of Air Canada. At first glance, TD Rewards is appealing because you can use your points on any purchase made through Expedia.
However, if you look into the value of each program, you’ll realize that Aeroplan points can be worth more, and some Aeroplan cards offer you Air Canada perks such as free checked bags and priority boarding.
You shouldn’t assume that a bank employee making a card recommendation knows the finer details of each program. They may have an internal incentive to recommend one card over another, or they may not be aware of the differences. It’s crucial that you research the rewards program before applying for a credit card.
It’s possible to get a premium credit card right away
Suppose you’re new to Canada or have recently returned after years abroad. In this situation, you may qualify for a premium American Express credit card, such as the Cobalt, Gold and Platinum cards, even without a local credit history. This is because of Amex’s Global Card Relationship program.
If you’re coming from a country such as the United States, Britain, Singapore, France or Hong Kong, and held an American Express card for at least three months, you would enter your existing foreign American Express card number during the application process. If approved, there could be potential to transfer any remaining points from your original country to your new Canadian account.
Secured cards are another option
If you’re finding it hard to get approved for a credit card because of limited credit history, a secured card is a dependable alternative. With a secured card, you deposit security funds that serve as your credit limit and collateral for the credit card issuer.
As you make your payments on time, your information will be reported to Canada’s two credit bureaus: Equifax and TransUnion. After a few months, you’ll have built an established credit history, which will assist you when applying for a traditional credit card.
The Capital One Guaranteed Secured Mastercard is among the more trusted secured cards. Home Trust and Neo Financial also provide secured card options.
Beginning your credit journey in Canada doesn’t have to be confusing. By understanding the available options before applying, you’ll find it easier to choose the right card.
Barry Choi is a personal finance and travel expert. He was previously affiliated with TD, Aeroplan, American Express, Capital One and Home Trust but currently has no relationship with any of the brands mentioned.
